Investor Issues During COVID-19 in Connecticut

As expected, the COVID-19 pandemic has caused extreme market volatility, with wild fluctuations in stock prices and the value of investment portfolios.  Though market volatility has historically precipitated an increase in securities and investment-related litigation and arbitration, the spread of COVID-19 only underscores an already delicate issue in most investor claims – proving that account losses were caused by mismanagement rather than the market itself.

On March 23, 2020, the SEC Enforcement Division issued issued guidance.to publicly traded companies stressing the “importance of maintaining market integrity,” as market conditions created greater risk for insider trading.     On April 8, 2020, the SEC Director of Corporation Finance issued a statement encouraging publicly traded companies to provide particularly detailed financial disclosures and projections, even if such companies needed to regularly “update and supplement” such information at a later date.

With these principles in mind, investment advisors continue to have a legal obligation during the pandemic to conduct due diligence with respect to prospective investments in order to determine whether an investment product is suitable for the client’s specific circumstances.  In other words, investment advisors are not permitted to simply blame the market, but must at least attempt, when appropriate, to reassess portfolios and adjust them to the crisis.  Also, in many instances, the current economic crisis brings to light whether an investment advisor has previously failed to diversify a portfolio with high-quality investments to offset potential stock market downturns, exacerbating a loss in value.

If you have legal questions regarding the manner in which your investment portfolio has been managed both before and during the COVID-19 pandemic, please email Sam Fiano at sfiano@znclaw.com to schedule a consultation regarding your particular issue.